Asb Allegiance Real Estate Fund v. Scion Breckenridge Managing Member, LLC
50 A.3d 434
Del. Ch.2012Background
- Affiliates of ASB obtained reformation of three LLC agreements governing Scion joint ventures; fee-shifting provision in Section 9.9 entitles prevailing party to fees and costs.
- Scion preemptively filed one federal suit in Wisconsin; ASB filed in Delaware and later Scion filed two more in Illinois and Florida, seeking enforcement of individual LLC agreements.
- The four cases overlapped in time and claims, causing multi-jurisdictional activity; Merits Decision by this court dated May 16, 2012 resolved the core issue and ASB seeks fees for all related actions.
- The LLC agreements are governed by Delaware law; claims include fiduciary duties and implied covenant claims arising from the Dwight Lofts arrangement.
- Court analyzes whether fees for the implied covenant claim and for the federal cases are recoverable under Section 9.9 and whether the fee award should be allocated among Scion affiliates.
- Court ultimately awards $3,267,355.31 in fees and costs, allocated jointly and severally against three Scion affiliates for non-summer-leasing work and solely against Dwight Managing Member for summer-leasing work.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of fee recovery for implied covenant claims | ASB prevails on implied covenant counterclaims | Implied covenant claims are not recoverable without explicit allowance | Yes; fees for implied covenant claims recoverable under 9.9 |
| Recovery of fees in the federal cases | Fees incurred in related federal actions are recoverable since they relate to enforcing the LLC agreements | Rule 9(g) and separate forum rules apply only to federal actions, not contractual recovery | Yes; recoverable subject to reasonableness |
| Allocation of fees among Scion affiliates | Core substantive work identical; joint and several liability appropriate | Fees should be allocated per contract/entity | Fees allocated: $2,592,290.15 jointly and severally; $675,065.16 solely to Dwight Managing Member |
Key Cases Cited
- Merrill v. Crothall-American, Inc., 606 A.2d 96 (Del. 1992) (implied covenant requires no fraud proof for breach under certain conditions)
- Pressman v. Prudential Ins. Co., 679 A.2d 436 (Del. 1996) (implied covenant breach can arise without tort-like malice; fraud-like state not always required)
- Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434 (Del. 2005) (implied covenant looks to the contract; retroactive focus on bargain terms)
- Gilbert v. El Paso Co., 490 A.2d 1050 (Del. Ch. 1984) (intentional breach not required; reasonableness of conduct within implied covenant context)
- Lonergan v. EPE Holdings, LLC, 5 A.3d 1008 (Del. Ch. 2010) (special approvals and implied covenant constraints in discretionary decisions)